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Buying into what people in Asia buy [Sunday Times (Islamabad)]

(Sunday Times (Islamabad) Via Acquire Media NewsEdge) Consumer trends in China are very weak while those in India and other emerging markets such as Indonesia are stronger, said a visiting analyst.

Ms Odile Lange-Broussy, Geneva-based senior equity analyst of Lombard Odier's Asia Consumer Fund, noted that in China, sales volumes are robust in staple goods such as those in food retail and manufacturing but they face considerable price pressure.

Discretionary goods, however, are facing tougher times.

"Be it department stores, luxury goods or even sports wear, there's been very weak growth for the last two to three years and it's not improving," said Ms Lange-Broussy, who was in town for client meetings.

The Swiss bank's Asia Consumer Fund focuses on stocks related to products that people can "eat, drink or wear".

Ms Lange-Broussy suggested that demand may have bottomed out in China.

For instance, food inflation is very low so same-store sales growth at supermarkets is not strong.

However, "some of the companies are still expanding and we like those, like Sun Art Retail (which operates hypermarkets and is) the No. 1 Chinese food retailer in terms of sales".

She noted that companies' "cost base is growing faster than the 2 or 3 per cent inflation", and margins are coming under pressure.

In India, where interest rates and inflation are high, companies making staple goods are still seeing acceptable volume growth of "mid-single digit, 4, 6 or sometimes 9 per cent for the really good ones".

These firms include Hindustan Unilever, Nestle India and Britannia Industries.

For instance, Hindustan Unilever's return on capital is more than 100 per cent because its brands are popular and the margins are strong.

"But these companies are really expensive, compared with China. The India valuations are very high because there's this promise of 1.3 billion consumers," noted Ms Lange-Broussy.

She added that consumer trends in Indonesia have been interesting over the past year.

"There was a rise in minimum salary in Jakarta - 45 per cent in January 2013 - and even though inflation went up, the salary rise was so significant that the same stores' sales growth of staple goods was up."
Despite the issues in each market, she remains confident about the companies the fund invests in.

"These are the trends for the last 12 months. We remained very convinced that in the longer term, all the characteristics of these markets are very strong, and we are very happy to be invested in these companies that we've selected," she said.

"We are confident that they will embody the growth of the middle class successfully in the next 10 years."
rachaelb@sph.com.sg
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